Personal insolvencies spike as business failures and economic strain take toll

Data from the Australian Financial Security Authority (AFSA) has found a significant rise in personal insolvencies for the March 2024 quarter. According to the report, there has been a 19.5% increase compared to the same period last year.

Unsurprisingly, economic challenges have been contributing to this rise, including cost of living pressures. However, a large percentage of personal solvencies has also been connected to business failures.

Nationwide insolvency trends and their business impacts

The AFSA report revealed that insolvencies have risen across most states and territories, with New South Wales recording the highest number at 885, followed by Queensland at 759.

It’s worth noting that Tasmania experienced a decline where South Australia’s figures held steady.

Of the total insolvencies, 758 were linked to business activities. This equates to 25.5% of all insolvencies, revealing a strong connection between the personal and the business when it comes to financial health.

However, this surge in personal insolvencies is attributed to multiple factors beyond business failures.

High interest rates, escalating tax debts, and overall cost-of-living pressures have exacerbated financial distress. And it probably won’t stop anytime soon.

Separate AFSA data also pointed to a continuing trend as economic pressures persist, with 9,737 personal insolvencies recorded up to April 30, 2024, compared to 7,991 during the same period in 2023.

AFSA urged individuals experiencing financial difficulties to seek help early from trusted sources. “Financial counsellors and registered professionals can help review individual situations and plan an appropriate response,” AFSA said.

Additional findings from ASIC

In a related report released this week, the Australian Securities and Investments Commission (ASIC) found over 5.8 million Australians are in financial hardship, but aren’t seeking help from their lenders.

ASIC’s Moneysmart survey found 47% of Australian adults with debt have struggled to make repayments in the last 12 months. The primary reasons for this have been related to cost of living pressures, reduced income and unexpected expenses.

Despite these struggles, 30% of Australians said they wouldn’t seek hardship assistance from their bank or lender.

Instead, 42% said they would prefer to sell belongings, with 40% saying they would get a second job before seeking help.

ASIC Commissioner Alan Kirkland emphasised the importance of reaching out for assistance, noting that customers in hardship are entitled under the law to request help from their lenders.

“Many Australians find the path to seeking help daunting and confusing. It’s concerning that people would rather sell their personal belongings or get a second job rather than seek financial hardship assistance,” Kirkland said.

“If you aren’t happy with your bank or lender’s response, make a complaint and, if that doesn’t resolve the issue, contact the Australian Financial Complaints Authority.”

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